The US labor market may be weaker than official data suggest. According to an alternative measure developed by the Ludwig Institute for Shared Economic Prosperity (LISEP), nearly one in four American workers was "functionally unemployed" in July.
What the True Rate of Unemployment is
LISEP's True Rate of Unemployment (TRU) tracks "functional unemployment": the share of the labor force made up of the jobless, those working part-time involuntarily, and those earning a poverty wage. In July the TRU rose 0.2 percentage points, from 24.7% to 24.9%.
The rate has now increased for four consecutive months and has risen 1.3 percentage points since March, though it remains below December's peak of 25.2%.
The contrast with the official figure
The gap with official statistics is stark. The Bureau of Labor Statistics reported a 0.1 percentage point improvement in the July unemployment rate, which fell to 4.1%.
Moreover, just as functional unemployment rises, the labor force participation rate keeps declining. LISEP's TRU Out of the Population (TRU OOP) measure, which captures the share of the working-age population not functionally employed including those who have dropped out of the labor force, rose 0.2 points to 53.8%, up 0.8 points since the start of the year.
The signs of weakness
"We shouldn't read too much into a single month, but four months begin to tell a story," said LISEP Chairman Gene Ludwig. "Functional unemployment is moving higher while workforce participation is moving lower. If this continues, it would suggest the labor market is losing strength despite what we may see in the headline unemployment numbers."
"In a strong labor market, good jobs and rising wages should bring more people into the workforce, not fewer," Ludwig added. "We need to pay attention when that starts moving in the other direction. It could be a sign that people aren't finding the opportunities they want or need."
Gender and demographic differences
The picture also shows a marked gender gap. The TRU for men fell for the second consecutive month, down 0.9 points to 19.5%, while the rate for women rose 1.6 points to 31%, the highest level since March 2021. As a result, the gender gap widened from 9 to 11.5 percentage points.
By demographic, the July TRU for Black workers was unchanged at 27.3%, while the rate for Hispanic workers fell for the second consecutive month, down 1.5 points to 26.7%. Functional unemployment for White workers rose 0.6 points, from 23.2% to 23.8%.
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